About 2 months ago with credit markets in turmoil and distributions of major MLP's going nowhere I deceided to sell covered calls. I had 14 contracts for KMP Dec 55 bought in middle of October. Something happened that never happened before. 12 of these were called last week of October when price was 56+ and 1 day before x dividend. So I would lose the 1.05 distribution. I resold and made a small additional profit. Some money became Jan11 60's ,which I think is an excellent buy because at 54 you would get $1.00 plus $4.35 or $4.40 plus $5.00 premium of $1.30-40 if called Jan 11. Somewhere about 20-21% for 14 mos. If it doesn't reach 60 then what have you lost but small appreciation between 54 and 60
Therefore, after kicking this around and not using Chartney's formula I have come up with these to jarr your thinking.
1. Never sell covered calls to expire Feb-May Aug Nov as they will take it before if in the money and lose distribution.
2 Multiply 50 x present distribution and get where you should be buying a major mlp (Under)
3.Buy 1-2 days after secondary 50 to 75 cents under price wait when up 1 or 2 dollars and sell cov ered call out of money.
4. only sell out of money calls when you can make 6% in less than 4 months.